19 March 2015
Comment from Scilla Huang Sun and Andrea Gerst, co-managers of the JB Luxury Brands fund at Swiss & Global Asset Management
“The start of Baselworld, the international watch and jewellery show, comes at a turning point in the luxury industry, as the sector puts a challenging year behind it. We expect to see growth of between six and eight per cent in 2015. Sales in Europe appear to have bottomed, the number of new luxury consumers in emerging markets continues to grow and headwinds of the past two years are abating. While currency effects negatively impacted sales and margins in 2014, this should turn around strongly in 2015 and earnings downgrades should now be behind us.
“Luxury brands are in the fortunate position of being able to raise prices to protect margins owing to their strong pricing power. After the appreciation of the Swiss franc in January, Richemont and Swatch announced price increases of five to 10 per cent for the watches they export; a prime example of pricing power offsetting a hit on margins. Most luxury companies are also running strong cash flow surpluses after capital expenditure. Aside from share buybacks, many increased dividends for 2014; Kering and L’Oréal increased dividends by eight per cent and Luxottica by 11 per cent. LVMH, Hermès, Lindt, Estée Lauder and Tiffany have not cut their dividends for over ten years.
“The luxury industry continues to benefit from Chinese tourists who increased their spending by over 20 per cent in 2014. While investors’ focus in China has been mainly on the slowing economy and the austerity measures, the Chinese middle class continues to grow and the number travelling abroad is on the up. Gifting to government officials may be over, but private consumption and Chinese consumers’ love affair with luxury are not.
“Tourists account for 30 to 40 per cent of the global luxury market, with Tokyo, Seoul and Taipei currently the hot spots for Chinese travellers. Tourists tend to follow currency moves and companies with stores around the globe are best positioned. Despite sophisticated pricing policies, duties and taxes mean that price differences do exist. The depreciation of the euro, for example, has resulted in more tourists shopping in Paris and Milan versus the US where companies such as Ralph Lauren and Tiffany have noted fewer tourists recently.
“We continue to find good investment opportunities in well-managed companies with a global reach, which tend to provide a better risk/reward profile than companies that are only exposed to one region. We still favour jewellery given the secular growth of branded jewellery and affordable brands which benefit from new consumers entering the luxury market. In the more competitive handbag space, we see Louis Vuitton, Saint Laurent and Ferragamo as clear winners.”
Four Broadgate: Cara Penkethman / Monika Witkowska
+44 (0) 207 726 6111
About Swiss & Global Asset Management
Swiss & Global Asset Management is part of GAM Holding AG, an independent, pure-play asset management group. Born out of Julius Baer Asset Management in October 2009, Swiss & Global Asset Management is the exclusive manager of Julius Baer Funds. In addition to its comprehensive range of investment funds, it offers tailored solutions for institutional clients and customised private labelling services. Swiss & Global Asset Management combines Swiss roots – in the form of long-standing client relationships and a focus on quality – and a network that spans the globe, with more than 1,000 distribution contracts in some 30 countries.
GAM Holding AG is listed on the SIX Swiss Exchange. The Group has assets under management of CHF 124.1 billion (as at 30 September 2014) and employs over 1,000 staff with offices in eleven countries. For more information visit www.swissglobal-am.com.
Important legal information
The information in this document is given for information purposes only and does not qualify as investment advice. The Julius Baer Luxury Brands Fund is a sub-fund of Julius Baer Multistock (SICAV according to Luxembourg law) and is admitted for public offering and distribution in the UK. Copies of the respective prospectus and financial statements can be obtained in English from Swiss & Global Asset Management (Luxembourg) S.A., UK Branch, UK Establishment No. BR014702, 20 King Street, London, SW1Y 6QY, as a distributor of the aforementioned fund (authorised and regulated by the Financial Conduct Authority) or from the Facilities Agent: GAM Sterling Management Limited, 20 King Street, SW1Y 6QY, London, United Kingdom. Swiss & Global Asset Management is not a member of the Julius Baer Group.